China's Central Bank Announces Surprise Rate Cuts To Support Faltering Economy
The Public Bank of China (PBoC) has introduced yet another rate cut in an attempt to support the faltering economy. Overall, that's the 2nd rate cut in the last 3 months and tells us that the Chinese authorities are stepping up their efforts to spur growth in the economy.
After the recent move, the PBoC has also opened the doors to lower the LPR (lending benchmark loan prime rate) as well in the next few days.
The Chinese economy is facing multiple challenges, such as deflation, slow credit growth, and a slowdown in the real estate market. In fact, the risk of defaults in the housing sector is also rising, which could end up deteriorating the financial market's confidence.
China's Economy Facing Serious Headwinds
According to a Commerzbank economist, all of the factors highlight why policymakers are moving so fast. If they don't, the business and consumer confidence will deteriorate sharply.
In total, the PBOS has lowered the rate from 2.65% to only 2.50%, which is a reduction of 15 basis points. This was down on an MLF worth 401 billion yuan, roughly equal to $55.25 billion.
The PBOC also issued a statement in which they said that it was essential to have ample liquidity in the banking system and how the cash injection can help them achieve it.
For the most part, the rate cut by the PBoC was a surprise for most of the market participants. Now that the rate cut is announced by PBoC, experts believe that Yuan (CNY) will depreciate and touch the 7.3 level.
Especially, the credit conditions for the medium-term will be introduced through asymmetric cut which will also pave the way for a LPR cut as well.
The recent move by the PBoC cannot be considered as a one-time event as the Chinese economy is facing some serious challenges. That's why it would be wise to say that we will see more cash injections and rate cuts for the rest of 2023.